■ ■ ■ Cautionary Tale 3: Employees may not only be pressured to
meet challenging sales goals, but may also be pressured by the
consequences for not meeting sales goals. For example, at least
one bank required its employees to work weekends to make
up their numbers if they fell behind on goals. Also consider
how quickly an employee will be disciplined or terminated for
missing sales goals. If the policy only allows only one or two
misses, it may be putting too much pressure on the employees.
Evaluating employee probationary or termination guidelines
and who is responsible for carrying them out may reveal additional risk exposures related to improper sales practices.
Even extreme sports have guidelines and governing bodies. So too,
all of the standard governance practices should be installed for
sales practices. This includes assessing risk, establishing policies
and procedures to set compliance standards, setting up system
controls (where possible), monitoring, using available reporting
tools and training sales staff.
A targeted UDAAP risk assessment will both establish a baseline
of inherent risk exposure, and also serve as documentation of a
robust program. One way to limit the scope of risk in this vast
arena is to focus on the quality of UDAAP risk governance.
Inherent Risk Factors
Sources of risk exposure for improper sales practices or incentive
compensation plan manipulation include sales goals, incented
activities, and any action an employee may perform on a consumer’s behalf (e.g. online banking enrollment). The greater the
incentive compensation for a specific activity and the greater the
sales goals, sales pressure, or impact of not meeting sales goals,
the greater the likelihood an employee will engage in an unfair,
deceptive, or abusive act or practice. The Consumer Financial
Protection Bureau (Bureau) [and the Office of the Comptroller
of the Currency (OCC), State of California, and Congress] has
made it clear that the root cause of a trend in incentive plan
manipulation or improper sales practices, is a corporate, systemic
shortfall and “abusive” behavior. The risk that an employee may
manipulate incentive compensation or engage in improper sales
practices is organizational UDAAP risk.
To determine inherent risk exposure, examine who in your or-
ganization is incented (employees in various distribution channels,
cross-sale teams and third parties), what activities or behaviors your
organization incents (multiple accounts for the same customer,
credit card activations, online banking enrollment, add-on product
sales, small business product sales), and how much incentive is
provided (greater incentive for higher cost products, incentive
for a customer to have many similar products). Also, examine
sales targets and goals for all employee levels, how and how often
sales goals are made and reported, and how attainable they are,
considering current marketing conditions. Goals may need to be
lowered during difficult economic environments. Companies that
have a high turnover rate have an elevated inherent risk rate as it
could indicate employees are not meeting goals because they have
been set too high. Don’t forget to consider incentives for higher
level positions, because pressure may be applied to others even
when there is no direct incentive in the reporting line.
Quality of Controls
The sales practices risk assessment can be “divided and conquered”
by conducting multiple targeted risk assessments, each of which
assesses only one product/service or one delivery channel. One
way to execute this is to prioritize products or delivery channels
by risk, which is often correlated to volume (of sales, but also
perhaps, complaints). Examples of effective controls across various products and services are discussed throughout this article.
Policy and Procedures
Banks should document their expectations for sales practices
in policies and procedures. For sales staff, this might include
expectations for following scripting or setting directives for how
they should work with customers. It should also explain what
monitoring will occur and the ramifications for non-compliance.
For sales managers, procedures should outline the extent to which
they should oversee sales staff. For example, what reports and
customer surveys should they review, and what other tactics
should they employ to manage sales practices (such as regularly
observing or participating in actual sales)?
Policies and procedures should also detail responsibilities of
the second and third lines of defense and Human Resources. For
example, the bank may consider requiring an HR representative to interview exiting employees to determine if they were
aware of any improper sales or were subject to unreasonable
sales pressures. Departing souls are much more likely to sing
than someone who is dependent on his or her job.
And don’t forget to review those policies and procedures on
a regular basis–along with any marketing or scripting used for
sales. It is a best practice to validate your processes and materials
against the changing external environment.
Most banks perform call monitoring. Calls are recorded and a
percentage are later reviewed to ensure personnel read required
scripting and did not stray from approved verbiage. Monitoring
scripts should also include checking to ensure employees do not
put undue pressure on customers, explain products appropriately
and obtain consent for products. There should be clear ramifications for non-compliance, including the loss of a bonus in the
event of infractions.
■ ■ ■ Cautionary Tale 4: It is more difficult to monitor in-person
sales. There is no easy way to record these transactions, so quality
assurance staff must stay for the live performance. But sales pitches
may be stilted or otherwise not fully representative during monitoring. To further complicate matters, not all sales are conducted at the
branch as dictated by customer need. For example, private bankers
and mortgage consultants may be likely to meet clients outside of
the bank. While reviewing complaints and other back-end data is
a good start, it is important to set proactive controls to oversee the
actual sales. Options include mystery shopping, surveying customers